onecompany seventeen brands Contents Annual Report 2006

Transcription

1 Contents Inside the Cover Our Vision, Our Strategy and Goals, Our Competitive Edge, Financial Highlights, Do ufl Otomotiv s Targets 01 Corporate Profile 02 Milestones from Do ufl Otomotiv's History 04 Do ufl Otomotiv Board of Directors and Support Functions 06 Message from the Chairman 10 The Economy of Turkey and the Automotive Sector at Do ufl Otomotiv: A Year of Change and Restructuring 18 Do ufl Group 22 Volkswagen Passenger Cars 30 Volkswagen Commercial Vehicles 38 Audi 44 Porsche 50 SEAT 56 Skoda 62 Scania 70 Krone 76 Do ufl Oto 82 Do ufl Otomotiv Logistics Services 86 vdf Holding 94 DOD 98 Do ufl Motor Sports 102 Do ufl Insurance Agency Services 104 Corporate Governance Principles Compliance Report 112 Information on the Capital Structure and Shareholding 112 Information on Do ufl Otomotiv Stocks 113 General and Administrative Activities 116 Amendments to the Articles of Association in the Reporting Period 119 Dividend Distribution Proposal 120 Audit Report 121 Consolidated Financial Statements and Independent Auditor's Report 169 Authorized Dealers and Services onecompany seventeen brands Annual Report 2006

2 Our Vision Do ufl Otomotiv aims to: Do ufl Otomotiv's vision is to provide innovative service beyond expectations. Our Strategy and Goals Do ufl Otomotiv's corporate goal is based on the philosophy of BE SIZABLE, BE CLOSE and BE CREATIVE. With its entrepreneurial culture and ever-increasing potential, Do ufl Otomotiv defines its strategy as; - Specializing in the domestic market and always being the leader in the import market, - Maintaining a strong regional position in the international arena. Our Competitive Edge In the long run, Do ufl Otomotiv aims to continue its growth-driven strategy. It has differentiated itself within the sector with its steady growth, innovation and close relations with customers and is further strengthening its competitive edge along these lines. Financial Highlights (million TRY, IFRS) Change % Net sales 2,527 2,466 2 Operational Profit (58) Net Profit (83) Total Assets 1,131 1, Gross Profit Margin 11.5% 14.4% Net Profit Margin 0.7% 4.3% Achieve the position of perennial leader in the import market, Provide quality service with its extensive network and to embrace a strong customer oriented work ethos, Become a major player in every stage of the automotive value chain and be sizable, Secure its place among the most trusted brands of Turkey, Since Do ufl Otomotiv's presence in the market, the market share that the Volkswagen Group brands captured in Turkey grew from 0.5% to 12% through continuous and sustained development in 12 short years. Do ufl Otomotiv has become not only the leader of the import market in the last two years but also the increasing value of the Turkish automotive sector. Since 1994 when it became the distributor and importer of the Volkswagen brand, Do ufl Otomotiv has adopted a vision of quality service that is customerfocused with exemplary servicing facilities that enable it to continue to maintain an extraordinarily high level of customer service provision. Maintaining its position as a significant player in each stage of the automotive value chain is the most important principle in Do ufl Otomotiv's corporate strategy. The company has made structural changes in traditional work areas in order to be more productive, effective and fast moving. It has also taken the first steps into automotive manufacturing and exporting. Do ufl Otomotiv has been able to position and secure itself among the most trusted brands in Turkey and has successfully gathered a range of different brands under one roof. The company secured its place among the most sound business ventures in the country with its successful initial public offering (IPO) and has been able to gain its stakeholders' and customers' trust with its market proven strategy and operations. Provide innovative service beyond expectations, Do ufl Otomotiv has arranged its business plans around the vision of providing innovative service beyond expectations; has analyzed in detail the future of the automotive sector; and has aimed to base its service exceeding the expectations of its customers and shareholders on creativity, closeness and differentiation. Do ufl Otomotiv's shares are traded on the Istanbul Stock Exchange (ISE) under the ticker DOAS.

3 page 1 Kurumsal Corporate Profil Profile Do ufl Otomotiv differentiates itself within and leads the Turkish automotive sector via its extensive product line, sales volume, widespread after sales service network and profitability. In 2006, Do ufl Otomotiv was both the leading automotive importer and one of the largest distributors in Turkey. The company is home to 13 brands (Volkswagen Passenger Cars, Volkswagen Light Commercial Vehicles, Audi, Porsche, Bentley, Lamborghini, SEAT, Skoda, Scania, Krone, Meiller, Volkswagen Marine and Scania Marine) and 70 different models in the segments of passenger, light commercial and heavy transport vehicles. Do ufl Otomotiv is the official representative of the Volkswagen Group brands in Turkey. Do ufl Otomotiv, with its 249 sales and 276 after sales service points, has the widest sales and service network within the automotive sector in Turkey. Taking a pioneer role in every stage of the automotive value chain and having set up its roadmap in this direction, Do ufl Otomotiv also operates in related areas such as automotive financing, spare parts and accessories trade, logistics and after sales services, used care trade, fleet rental and insurance provision in addition to its roles as importer and distributor. In automotive financing and the used cars trade, Do ufl Otomotiv has formed strong brands such as DOD; in the industrial and marine engines segments it has aimed to institutionalize these fields through distributorships of Scania and Volkswagen Marine. Along with its "Traffic is Life" campaign that pioneers the development of a sense of responsibility and education in trafficrelated issues in Turkey, Do ufl Otomotiv differentiates itself with its quality of service, innovativeness and its ability to integrate technology into its service process. Do ufl Otomotiv is a member of the Do ufl Group, one of Turkey's premier business conglomerates, which is active in the financial services, automotive, construction, media, tourism, real estate and energy sectors. Do ufl Otomotiv differentiates itself with its quality of service, innovativeness and its ability to integrate technology into its service process.

4 page 2 Milestones from Do ufl Otomotiv's History Do ufl Otomotiv operates under the principle of creating the highest added-value and aims to grow by strengthening the relationships with all the brands that it represents. Total Car Park 547,000 Do ufl Otomotiv's Total Car Park Scania contract signed Do ufl Group established subsidiaries distributing Volkswagen, Audi and Porsche Custom duties on vehicles imported from the EU abolished SEAT & Skoda distributorship Partnership with Yüce Auto Volkswagen AG Consumer Finance Joint Venture Market share 0.5% Scania Industrial and Marine Engines contract signed Market share 5.8%

5 page 3 Lamborghini Letter of Intent Krone production contract signed Bentley Letter of Intent First dividend paid Back Office consolidation Second dividend paid Volkswagen Marine Engines contract signed Do ufl Otomotiv acquired 100% of SEAT Meiller contract signed Merger of Automotive companies under DOAS Direct dealership of Volkswagen Light Commercial Vehicle in Egypt Krone contract signed Used car operations established Market share 11.5% Market share 12.1%

6 page 4 Do ufl Otomotiv Board of Directors Board of Directors Tanju Özenç Cem Yurtbay Member of the Board of Directors Deputy Chairman Member of H. Murat Aka the Board of Directors Süleyman Tu tekin the Board of Directors Member of Aclan Acar Chairman and CEO Member of the Boatrd of Directors Özlem Denizmen Kocatepe Member of the Board of Directors Hasan Hüsnü Güzelöz Aclan Acar Chairman and CEO Aclan Acar is a graduate of the Ankara Faculty of Economic and Commercial Sciences, holds a master's degree in banking and insurance from the same school, and a master's degree in economics from Vanderbilt University in the United States. Mr. Acar joined the Do ufl Group in 1990 and has been chairman and CEO of Do ufl Otomotiv and Do ufl Oto Pazarlama since January 2006.

7 page 5 Tanju Özenç Deputy Chairman Tanju Özenç is a graduate of Ankara University (Department of Commercial and Industrial Business Administration). Mr. Özenç has served in a variety of positions in the Do ufl Group since H. Murat Aka Member of the Board of Directors H. Murat Aka holds a BA in business administration from Middle East Technical University and an MBA from Bo aziçi University (Department of Business Administration). He has served in a variety of positions at Do ufl Group since 1987 and is currently a Managing Director/Member of the Board. Özlem Denizmen Kocatepe Member of the Board of Directors Özlem Denizmen Kocatepe is a graduate of Cornell University (Department of Statistics) and holds an MBA from Massachusetts Institute of Technology. She has served in a variety of positions in the Do ufl Group since Hasan Hüsnü Güzelöz Member of the Board of Directors Hasan Hüsnü Güzelöz is a graduate of stanbul University (Department of Law) and has served in a variety of positions in the Do ufl Group since Süleyman Tu tekin Member of the Board of Directors Süleyman Tu tekin is a graduate of Bo aziçi University (Department of Mechanical Engineering) and holds a master's degree from University of Manchester Institute of Science and Technology. Mr. Tu tekin has served in a variety of positions in the Do ufl Group since Cem Yurtbay Member of the Board of Directors Cem Yurtbay is a graduate of the Academy of Commercial Sciences (Department of Business Administration) and joined the Do ufl Otomotiv family in Support Functions Mustafa Ali Barut General Manager, Operations Dr. zzet Berk Ça dafl Finance, Budget Planning, Risk Management and Investor Relations Coordinator Osman Mehmet Sindel Strategic Marketing and Corporate Communication Coordinator

8 page 6 Message from the Chairman The year 2006 proved once again Do ufl Otomotiv's ability to manage its leading position in the market, overall company strength and human resources together with its ability to plan effectively for the future. Aclan Acar Chairman and CEO 2006 was a leap forward for Do ufl Otomotiv

9 page 7 We honor the promises to our investors We are continuing to be the leader in the import market and as in the previous years our company's market share continues to grow. In 2006, we sold 76,902 vehicles, generating net revenues of TRY 2,527 million and a gross profit margin of 11.5%. The financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). For the year, the net profit of the company was TRY 18 million. As a result, the profit per share for 2006 was TRY Do ufl Otomotiv, with its strong financial structure, succeeded in achieving the performance that it had targeted in spite of unforeseen fluctuations in currency rates starting from May Our company continues to be a symbol of trustworthiness and shares a minimum of 50% of its distributable profit as dividends, as declared to the investors in the corporate profit distribution policy. The year 2006 proved once again Do ufl Otomotiv's ability to manage its leading position in the market, overall company strength and human resources together with its ability to plan effectively for the future. Our business environment Despite the currency fluctuations during the year, economic performance of 2006 was stable. Turkey has continued without any interruption to successfully implement its economic stabilization program that aims for steady long-term growth and the country now is even seen as a model among fast-growing emerging market economies. Although negotiations with the EU decelerated during the year, the membership accession process still continues and it contributes positively to the Turkish economy. The country's economic situation affected the business environment and the favorable macroeconomic indicators helped the automotive sector continue its growth. While the market share of the automotive and automotive supplier industries is around 20% within the total exports, Turkey is at the center of attraction for the industry. With its strategic location and strong economic performance, the country continues to be a favorite of the world's leading automotive companies. While these developments are taking place in the automotive sector, Do ufl Otomotiv, using its competitive advantages and differences in every stage of the automotive value chain, continues to take determined steps towards implementing its mission. Do ufl Otomotiv is moving towards fulfilling its mission with decisive business plans that use the company's differentiated and competitive advantages in every link of the automotive value chain.

10 page 8 Message from the Chairman Our company strengthens its place within the market with these new brands and has always endeavored to exceed customer needs and expectations at the very highest level. New brands joined our family We have added four new valuable brands to our portfolio: Bentley, Lamborghini, Meiller and Volkswagen Marine Engines. We now have a total of 13 brands that we represent. It gives us great pleasure and immense honor to see these four brands that have such worldwide respect become part of the network of Do ufl Otomotiv sales and after sales services. Our company strengthens its place within the market with these new brands and has always endeavored to exceed customer needs and expectations at the very highest level. I would like to use this opportunity to welcome our new brands to Turkey and thank them for choosing Do ufl Otomotiv as their business partner. Our first steps in production and export For Do ufl Otomotiv, that aims to be involved in every area of the automotive value chain, the year 2006 was one in which it took the first steps in production and export. Our company has started the Egypt operations of Volkswagen Commercial Vehicles that is of great importance for the export domain and our regional growth strategy. Our biggest partner Volkswagen Group chose to cooperate with us in Egypt as a result of our continuous growth success and performance in retail and after sales service network in Turkey. With this decision, Volkswagen once again proves its trust in Do ufl Otomotiv. Another development that brought excitement to our company during 2006 is the decision of partnering with the Krone brand for the production of trailers in Turkey. This leap will be an important step for Do ufl Otomotiv's positioning as a producer. New business areas are attracting us Do ufl Otomotiv is interested in every direct and complementary field of activity in the automotive value chain and is determined to seize new business opportunities that the market presents. We have decided to establish a factoring company with vdf, which provides automotive financing and with whom we are partners already. This new partnership that we will establish under the aegis of vdf primarily will work to finance our authorized dealers. The tender for establishing and starting Vehicle Inspection Stations that was offered in 2005 by the Privatization Administration was obtained by a Do ufl Otomotiv - Akfen Holding - TÜV SÜD consortium. The new corporation, called TÜVTURK, was established by the consortium that same year. In the privatization tender, it was foreseen that a minimum of 189 Immobile Inspection Stations, 433 Inspection Channels and 38 Mobile Inspection Stations be built within the country and administered by TÜVTURK for a duration of 20 years. Within this project, the goal is to establish in Turkey a Vehicle Safety Sector that will be a prototype for the world. In the year 2008, it is planned to start the business upon construction, completion and implementation of all the stations following the signing of a concession that is expected to be executed within the first half of Our sales and after sales services are exemplary We own the youngest fleet and operate the widest sales network in Turkey. These qualifications ensure the provision of innovative service beyond expectations to our customers and assure our ability to produce real value. The logistics service with its strong technological infrastructure, peerless barcode system and its ability to effectively and rapidly administer over 60,000 product varieties is based in Gebze. There, we provide spare parts, stock new vehicles and make deliveries to all sales and service points. It is a very important facility that reflects Do ufl Otomotiv's deep commitment to quality and service. Our used car activities are developing DOD, which was a part of vdf, joined Do ufl Otomotiv in 2005 and is capitalizing on the growing demand for the purchase and sale of used cars. Already showing the early signs of success in its brief history since its establishment, and having left 2006 behind as a year of restructuring, we believe that DOD will grow much more in this market in coming years.

11 page 9 Within DOD in 2006 we are once again accomplishing something for the first time in the sector by selling automobiles through an open bidding system. This new step that we took will especially increase our internal capability to sell directly to the consumer the returned vehicles from the fleets. At the same time, this innovation will play a role in the transition of the Turkish automotive market to a more organized structure. Do ufl Motor Sports Do ufl Motor Sports has contributed to the publicity of our company and to raising the general awareness of the automotive sector in our country by organizing the SEAT Cup and the Polo Ladies Cup, organized for the first time in Turkey, to which Volkswagen attaches special importance. OtoMotion: A lifestyle center for the future In the Maslak area of stanbul, construction has begun on OtoMotion, an innovation for stanbul that is causing excitement everywhere. This interactive experience, which is defined as a way to bring our customers in closer contact with our brands, is scheduled to be opened in the fall of OtoMotion will reflect the diverse interests and lifestyles of our city and provide a showcase for the cultural, creative and business interests of our community. OtoMotion is a unique concept, a place where our customers and potential customers can visit and socialize again and again 365 days a year. Do ufl Otomotiv in the future With an eye towards its own future, Do ufl Otomotiv has made detailed analyses of companies similar to itself in the world, their market position, profit margins and corporate organization and positioned itself accordingly. After the in-depth company-wide studies, we set Do ufl Otomotiv's vision as innovative service beyond expectations and we have based our corporate strategy on the axis of be sizable, be close and be creative. Do ufl Otomotiv will deepen its sales and used car trade activities in Turkey and will expand to neighboring countries with a profit-driven development strategy based on simplicity; it will continue on the path to becoming an even more efficient and productive company through adding new brands to its portfolio. We owe much gratitude to our valued local and foreign shareholders for trusting us and for their continuous support. As long as their support continues Do ufl Otomotiv will be a stronger and larger company. I also would like to express my thanks to our valued customers who appreciate our difference in service and our closeness with them. I would also like to cordially thank our workers who compete with each other to give this high level of service in the best way possible. Aclan Acar Chairman and CEO Do ufl Otomotiv, with its profit centered development strategy based upon lean management understanding, will expand to countries in the surrounding region and will continue on the road to becoming an increasingly more effective and productive company.

12 page 10 The Economy of Turkey and the Automotive Sector Turkey's Economy Turkey's economy continued its consistent growth in 2006; GNP increased by 6% as of year-end. While the private sector consumption and investment expenditures are the main sources of growth, the industrial sector continued to show a strong performance while in the services sector, a slight deterioration occurred. In 2006, Turkey's foreign trade volume continued to grow: exports increasing to USD 85.1 billion and imports reaching USD 137 billion. In line with the high global commodity prices -petroleum leading-, volatile global liquidity and increase in the use of foreign intermediary goods, imports have shown significant increase. Export volume has also increased as a consequence of the fluctuation in the currency rates in May, depreciation of TRY and the increase in the interest rates In the first four months of 2006, inflation started to rise again due to increasing local demand, rigid service prices, higher costs for raw materials and the persistently high cost for foodstuffs. The depreciation of the Turkish Lira from May on has been a factor that pressured inflation upwards. At the end of 2006, the annual inflation rate rose to 11.58% according to the Producer Price Index; and to 9.65% according to the Consumer Price Index, an increase above formal expectations (5%). The unwavering and strict implementation of the economic stabilization program that aims for steady long-term growth provided the basis for the strong performance of the Turkish economy in Turkey continues to be a model country among the developing economies. Despite the decelerated rate of negotiations with the EU, the accession process continues to have a positive impact on Turkey's economy. The continuous and disciplined implementation of Turkey's economic stabilization program that aims for sustainable long term growth provided for a strong performance in the country's economy in Real GNP Growth (%) CPI Inflation (%)

13 page 11 In 2006, within the entire Turkish passenger cars market, the sale of locally produced cars reached 118,864 units while 128,170 light commercial vehicle units were sold for the year. Automotive Sector In the World... The total annual unit production of the world automotive sector is about 60 million vehicles and the total value of this production is over EUR 5 trillion. With a share close to 35%, Europe is the world's largest production base followed by the US. Other global producers are located in Far East countries and Japan. In recent years, China and India have become significant automotive producers. The European Union coming to first place on the producers list is due to a frenzy of mergers, acquisitions and general consolidation within the sector in recent years. Since 2000, however, because of a sluggish macroeconomic environment a market contraction has occurred in the EU. In Turkey... With a production of more than 1 million vehicles per year, the Turkish automotive sector has shown much progress in the last 30 years and is well on its way to becoming one of the main production centers within the developing world. The automotive sector is concentrated around northwest Turkey, from Sakarya Total Vehicle Wholesales (Unit) , , , , , , , ,995 Adapazar to stanbul Çerkezköy and over to Bursa. Thanks to a strong automotive sector infrastructure, characterized by industry partnerships and agreements, Turkey continues to be an important country for companies within the sector which are involved in production. According to the wholesale figures of the Automotive Distributors Association (ODD), in 2006, sales of passenger cars and light commercial vehicles at the end of December decreased by 18.3% compared to the previous year; 614,995 units for 2006 versus 727,619 units in Out of the 614,995 total units sold in 2006, 371,325 units were passenger cars and 243,670 units were light commercial vehicles. For the year, a decrease of 16.1% in sales of passenger cars occurred while sales of light commercial vehicles declined 14.4%. Significantly, diesel vehicle sales increased their market share rising to 49% of sales for 2006 versus 38% for the previous year. In 2006, the total sales of domestically produced passenger cars were 118,864 units while 128,170 units of light commercial vehicles of domestic 727,619 Passenger Light Commercial Total production were sold. The total sales of locally produced passenger and light commercial vehicles were 247,034 units. For the year 2006 in the passenger cars market, sales of imported cars totaled 252,461 units and sales of imported light commercial vehicles amounted to 115,500 units. The total sales of imported vehicles were 367,961 units, which constitutes 59.83% of the total market. The turbulence in the currency and capital markets starting from the fifth month of 2006 is seen as the main reason for the decrease in total sales units for the year. The short duration of the fluctuation provided a quick rebound for the sector and the strong economic performance shown overall for 2006 reflected positively on the total sales units in the automotive sector. The future of the automotive industry... The fierce competition within the automotive sector globally in recent years has resulted in the elimination of the producers who cannot sufficiently control costs and those who cannot effectively deploy new technologies. The current competitive environment is expected to bring forth an investment in human resources capital in the automotive sector in coming years. Automotive production that responds to the demands and needs of customers, that is environmentally friendly, that offers a smaller but more comfortable vehicle to its customers is dominating the sector. Quests for new technologies and increased efficiency that is a part and parcel of the same process are also major topics that are coming to the fore in the automotive industry. Source: ADA (Automotive Distributors Association)

14 page at Do ufl Otomotiv: A Year of Change and Restructuring Do ufl Otomotiv added the year 2006 to its success score board on its journey towards becoming one of the dominant forces in the Turkish automotive sector. Since its first day of establishment, Do ufl Otomotiv has shown steady and strong development focused on creating value for all its shareholders, and the company has; - undertaken important developments and changes in the process of restructuring, - continued its leaps forward in an effort to engage in every phase of the automotive value chain, - taken the first steps towards the strategy of being a regional company. - Despite the fluctuations that occurred in 2006 in the automotive sector and a market contraction of 15%, Do ufl Otomotiv through its sound business planning maintained its competitive position, increased its market share to 12%, and attained successful financial results. - Achieved net sales of TRY 2,527 million with 76,902 units of vehicle sales and 12% market share, Do ufl Otomotiv, in 2006 attained a gross profit margin of 11.5% and declared TRY 18 million in net profit. Do ufl Otomotiv whose total assets reached TRY 1,131 million has provided a total asset size development in the ratio of 11% compared to last year. Our total shareholder's equity is TRY 486 million. - In parallel to its goal of becoming a regional player, and to replicate its success in the domestic automotive market elsewhere, Do ufl Otomotiv has cooperated with Volkswagen Group in Egypt in the light commercial vehicles segment. - Aligned with its strategy to be involved in every stage of the automotive value chain, it has taken the first step of moving into production by signing a letter of intent with Krone. - As necessitated by a service orientation that puts customer satisfaction above all else, Do ufl Otomotiv has added four valuable and prestigious brands to its portfolio: Bentley, Lamborghini, Meiller and Volkswagen Marine. - Continues to rigorously provide its customers creative, close and quality service with sales and after sales service network that is the widest in the automotive industry in Turkey. - Added DOD into the fold of Do ufl Otomotiv towards the end of the year 2005 and undertook a restructuring of the entity. DOD's excellent performance and high sales capability in 2006 is noteworthy. - vdf, a partnership between Volkswagen Financial Services and Do ufl Otomotiv, has shown rapid development in 2006 and its credit capacity increased at a fast clip. - Before the IPO, created synergy by gathering brands, sales and after sales services under the same roof. It has continued its enlargement, integration and restructuring activities in / 2006 Import and Distribution (Turkey) Import and Distribution (Abroad) Production Retail and After- Sales Services Automotive Related Services (Egypt) Logistics Center Do ufl Otomotiv Independent Authorized Dealers Automotive Financing* Katalonya Yüce Auto* DOD Used Car Sales Insurance* *Subsidiaries Motor Sports

15 page 13 Continuing steady growth Do ufl Otomotiv has been growing in a strategic, planned way since the year 1994 when it became the importer and distributor of the Volkswagen brand in Turkey. By exceeding expectations every year it has raised the satisfaction level of customers and increased its market share. It has been a leading brand in the import market as the company that sets the standards in service and quality. Do ufl Otomotiv, with its steady growth and determined strategic steps, makes its presence known within the Turkish automotive sector in a significant way. In 2006, Do ufl Otomotiv has achieved its goal of being among the key industry players in Turkey which best evaluate market dynamics. Since the day it was established, Do ufl Otomotiv, in an effort to strengthen its competitiveness and diversify its revenue streams, has supplemented its main business lines of importation and distributorship with provision of automotive financing, spare parts and accessories trade, logistics and after sales services, used car trade, fleet rental and insurance. The company, resulting at the end of this developmental process, has spread its activities in creative and diverse services to all stages, both before and after sales, in a wide spectrum of the automotive industry. Do ufl Otomotiv aims to be present in every stage of the automotive value chain and sees the year 2006 as a definitive step taken towards this goal and a secure future. Our financial performance Do ufl Otomotiv gained market share with its strong product portfolio in spite of the general contraction of 15% that occurred as a result of the macroeconomic developments in Do ufl Otomotiv sold 76,902 vehicles and recorded net sales of TRY 2,527 million, indicating a rise of 3% over last year according to its independently audited consolidated income statement, prepared in accordance with International Financial Reporting Standards (IFRS). Although there was a market contraction and more competitive pressure within the sector, Do ufl Otomotiv was able to achieve an enviable sales performance with a gross profit margin of 11.5%. Adhering to a controlled operating expenses policy, Do ufl Otomotiv declared TRY 65 million in operational profit for Aiming to be close to its investors, Do ufl Otomotiv will fulfill its promise of distributing its profit in the year 2006 as prior years. The company declared TRY 18 million of net profit at the end of the year Do ufl Otomotiv has spent the year 2006 investing in enhancing the automotive value chain. Total assets of the company grew by 11% compared to 2005 and reached TRY 1,131million. Do ufl Otomotiv, whose total shareholder's equity was registered as TRY 486 million with 1% growth, places great emphasis on risk management. As of 2006, the company generated TRY 58 million in its net cash position and its net working capital reached TRY 141 million. As part of its strategy of being present in every stage of the automotive value chain, Do ufl Otomotiv invested TRY 23 million in developing its new business activities. In 2006, Do ufl Otomotiv took a 20% market share of the import market and achieved total sales of 76,902 vehicle units.

16 page at Do ufl Otomotiv: A Year of Change and Restructuring Do ufl Otomotiv is one of the most valued brands of the Turkish automotive sector with its institutional and financial discipline, strategic business plans and savvy investments. Sustainable leadership in the import market Turkey is a center of attraction for the world's large automotive corporations due to its flourishing economy and strategic geographic position. Automotive exports and imports have significant share in the country's foreign trade volume. The automotive sector not only steadily propels Turkey's economy but also carries great strategic importance for our country on its way to becoming a global economic player. Do ufl Otomotiv combines its corporate values and market experience to result in sustainable leadership in the import market. The company maintained its leader position in the import market in 2006 garnering a share of 20% in the said market and selling 76,902 units of vehicles. The company's strong performance in the import market once again illustrates that Do ufl Otomotiv is a successful company achieving its targets and a company which has the right strategy. Do ufl Otomotiv is the symbol of trust Since its establishment, Do ufl Otomotiv has been a symbol of stability, strength and trust to its shareholders. With its organizational and financial discipline, sound business plans and savvy investments, Do ufl Otomotiv is an extraordinarily solid company that is very much appreciated in the marketplace and the investment community. Thus, it is no surprise that Do ufl Otomotiv is among the most valued brands in the automotive sector in Turkey. Do ufl Otomotiv issued shares to the public in At the time of its initial public offering, the company adopted a profit distribution policy that promised to share with shareholders 50% of its distributable profit for five years. Its financial results for 2006 show that the company continues to successfully fulfill its promise. Be present in every area of the automotive value chain Do ufl Otomotiv harnesses its innovative human capital and deploys advanced technology in an effective and productive manner, impacting every link in the automotive value chain while achieving profitability and delivering exemplary service. The year 2006 was a year of making great strides forward, and becoming involved in every stage of the automotive value chain. In addition, concrete steps were taken towards becoming a regional automotive power and commencing production operations. Starting operations in Egypt Volkswagen Group chose Do ufl Otomotiv as its business partner for its new enterprise it will establish in the segment of commercial vehicles in Egypt. This new partnership in Egypt came to fruition as a result of the exemplary success attained with the passenger cars and light commercial vehicles between the two parties in Turkey. Extensive market research and feasibility studies were conducted and the two entities agreed to partner in this new North African automotive venture.

17 page 15 The fact that Volkswagen chose Do ufl Otomotiv instead of its existing passenger cars distributor in Egypt illustrates once again the high level of respectability of the company in the international arena. The Egypt operation is a very important step in the strategy of further involvement in international marketplace and will also be a major milestone towards regional development and expansion. The organizational activities in Egypt have begun and it is foreseen that the showroom in Cairo will open in First steps to production Do ufl Otomotiv took its first step to entering another important link of the automotive value chain with the partnership agreement that was signed with Krone. Krone is one of the brands that Do ufl Otomotiv represents and it has gained significant market share in recent years in Turkey. As a result of this success, Krone in 2006 offered to make a partner investment and signed a letter of intent on this topic on 04 July The company's strong position and ideal image in the automotive and heavy transport vehicle market is the leading factor that played a role in Krone's decision to choose Do ufl Otomotiv as its partner in the production arena. Construction is planned to start in 2007 with actual production commencing in Strong brands and model varieties Do ufl Otomotiv has added a number of different brands to its portfolio and offers models of Volkswagen Passenger Cars, Volkswagen Commercial Vehicles, Audi, Porsche, SEAT, Skoda, Scania and Krone. The company provides sales, after sales and spare parts services with its widespread network. Do ufl Otomotiv has a forward-looking, dominant and prestigious image in the marketplace with logistics and spare parts trade facilities that contribute significantly to customer satisfaction along with its after sales services. Do ufl Otomotiv has 13 leading brands in its portfolio, including the four new brands added in 2006, and offers 70 different models, while being an effective and strong partner in the international arena. New brands joined our family In 2006, Do ufl Otomotiv added four more global automotive brands to its product offering. According to the terms of an agreement effected with Bentley Motors Limited, a subsidiary of Volkswagen AG, the marketing of Bentley products, sales and after sales services in Turkey will be conducted by Do ufl Otomotiv. With this agreement, the legendary English luxury brand Bentley is represented for the first time in the country. Another brand that joined the family in 2006 is Lamborghini. An agreement was signed with Lamborghini S.p.A regarding the marketing of the Lamborghini brand products, sales and after sales services in Turkey stating that these activities should be carried out by Do ufl Otomotiv. According to an agreement with Meiller Fahzeug & Maschinenfabrik - GMBH & Co KG, the Meiller brand tipper trucks and semi-trailer tippers sales and service facilities shall be administered by Do ufl Otomotiv in Turkey.

18 page at Do ufl Otomotiv: A Year of Change and Restructuring Do ufl Otomotiv provides sales, service and spare parts to the brands within its portfolio through its own network of 249 sales and 276 service points. Do ufl Otomotiv added a new milestone to its strong partnership with Volkswagen AG. A distribution agreement was signed between Do ufl Otomotiv and Volkswagen AG regarding the operation of sales and after sales services of Volkswagen Marine Engines. These activities will be conducted by Do ufl Otomotiv in Turkey. Do ufl Otomotiv is growing in the marine sector Do ufl Otomotiv assumed distributorship of the Scania Industrial and Marine Engines in 1995 and the company continues to take advantage of the potential that this industry harbors by opening new dealerships. Scania Margen opened in 's Tuzla district in 2006 and is different from all other Scania dealerships; it is the only one engaged in Scania Industrial and Marine Engine sales and after sales services. Do ufl Otomotiv added the Volkswagen Marine brand to its offering in 2006 and with this well-known name continues its growth in the industrial and marine engines segments. The widest sales and service network Do ufl Otomotiv supplies sales, service and spare parts to its 13 brands via its own 249 sales and 276 service points. With Turkey's widest automotive dealership network, Do ufl Otomotiv continues to place customer satisfaction ahead of all else. Do ufl Otomotiv's logistics center is located in Gebze. There, spare parts and new vehicles are stocked; products are sent out and delivered to all the sales and service points. With its technologically advanced infrastructure, the widespread and efficient network can effectively handle over 60 thousand different types of products. This facility continues to hold an importance as one of crucial part of sales and service networks. Used car activities In 2005, Do ufl Otomotiv acquired DOD, the leader in the used cars market in Turkey, from vdf and restructured the company. In August 2006, DOD resumed its activities in DOD City, Europe's largest enclosed used car purchase and sales center. For the year, DOD saw a big jump in sales with 7,760 vehicles sold versus 4,881 units sold in The factoring company partnered with vdf Do ufl Financial Services, in partnership with Volkswagen, has increased its volume of business consistently since its establishment in vdf is a wellknown, established entity in automotive financing with a high market share. vdf adds dynamism to the sector and is well aware of the importance of consumer loans volume as an engine of future growth within the automotive marketplace. Do ufl Otomotiv, in keeping with its Be sizable strategy, decided to establish a factoring company in partnership with vdf. This venture will be serving the authorized dealers and will be creating new opportunities in the automotive sector. Establishment of its operations is currently ongoing and its formal incorporation has been completed. Vehicle inspection stations: a new

19 page 17 potential business area A consortium of Do ufl Otomotiv, Akfen Holding and TÜV SÜD Deutschland signed a 20 year license agreement for the establishment and administration of the vehicle inspection stations in Turkey. Lean management approach Do ufl Otomotiv updated its organizational structure after its initial public offering in 2004, merging the operations of all its brands under one roof. This has endowed the company a more modern corporate structure. With the organizational projects that it had given a startup, Do ufl Otomotiv aims at having lean management methods that are becoming increasingly recognized in today's competitive business environment around the world. Do ufl Otomotiv places great emphasis on efficient workflow management and adoption of industry best practices to grow strongly in market conditions where increasing competition, ever rising costs, and pressure on profits and sales are unrelenting. In 2006, additional progress was made in this area and a participative management system was implemented. Numerous informational meetings were held among company personnel, and similar corporations in Europe and the rest of the world were analyzed in terms of their organizational structure and financial performance. We set our corporate strategy in 2006 As a result of extensive research and analysis conducted over the year, Do ufl Otomotiv developed its business plans and main corporate strategy. While innovative service beyond expectations embodies the company's long term vision, Do ufl Otomotiv's corporate strategy is built upon the axis of Be sizable, Be close, Be creative. To Do ufl Otomotiv, Be sizable means that the company aims to cultivate and harness its workforce to expand the company's operations and achieve a high level of professionalism, productivity and profitability in every division of its businesses, internationally and domestically. Be close guides Do ufl Otomotiv to understand all the expectations of its stakeholders and in this way to ultimately exceed them. In Be creative, Do ufl Otomotiv realizes that differentiation can transpire only through creativity and innovation. Creativity shows itself in teamwork driven product development, customer service and also in achieving a competitive advantage within the marketplace by being faster, having a deeper understanding of a work concept and remaining cost conscious. Closeness can only be achieved through a lean structure Do ufl Otomotiv in accordance with the vision of innovative service beyond expectations, strives to be close to; - its customers, - its suppliers, - its investors, and - its business partners. Do ufl Otomotiv will continue to stay close and understand them, and offer its services via a lean structure. This approach guides the framework for growth that Do ufl Otomotiv will achieve in the future. In the wake of projects that Do ufl Otomotiv has implemented successfully, such as the merger of all its brand operations under one roof and its initial public offering, the company plans to further develop its lean management system which is validated more each day in today's competitive business environment.

20 page 18 Do ufl Group Established in 1951, Do ufl Group has taken its place among the leading business conglomerates of Turkey and, in keeping with its corporate vision, conducts itself as a leader in the region. Do ufl Group is active in seven business sectors: financial services, automotive, construction, media, tourism, real estate and energy.

21 page 19 As of December 2006, the total consolidated assets of Do ufl Group reached USD 13 billion with revenues of USD 3.5 billion*. By percentage of revenues generated, the group's primary sectors are automotive (49%) and financial services (41%), followed by construction (5%), media (3%) and tourism (2%). Behind the impressive financial performance of Do ufl Holding, lies its customer-centered and productivityoriented management style. This successful management philosophy results not only in enviable profitability but also model corporate citizenship that the whole of society benefits from today and will continue to do so in future years. The group sponsors a variety of social projects especially within the education field that focus on children and public responsibility. With over 18 thousand employees and serving more than 6 million consumers, Do ufl Group focuses on engendering customer loyalty and building brand value with its high technology infrastructure. Do ufl Group thinks of its brands and their development not only within the country borders of Turkey but also sees them in a regional and global context. This outlook summarizes the company's vision particularly within the services sector. Do ufl Group always provides its services based upon the principles of trust and customer satisfaction. As a result, the group represents Turkey all over the world by creating trustworthy brands at world standards. The synergy realized with global players like General Electric and Volkswagen AG contributes to this process in a significant way. Due to these facts and the company's foresight, Do ufl Group has been able to adjust to ever changing global developments rapidly and has established itself as an innovation leader in Turkey. *The revenue generated by Garanti Bank is proportionally consolidated in the Group's total revenue.

22

23 one family

24 page 22 VOLKSWAGEN Passenger Cars

25 page 23

26 page 24 Volkswagen Passenger Cars has always been among the top three imported automotive brands and is one of the most popular and prestigious brands among consumers. Birgül Ak Karacahisarlı Volkswagen Passenger Cars Brand General Manager 2006 has been a successful year for Volkswagen Passenger Cars; market share and both sales and after sales customer satisfaction, have all increased. Our primary goal is to reinforce our brand s image leading position through a team that embodies our philosophy of innovative service beyond expectations and authorized dealers that form an exemplary organization with the investments to strengthen our position in the passenger cars market; providing the highest level of service in customer satisfaction at sales and after sales services; while integrating all these into our local and national market communications strategies was a year that proves one more time, the importance, success and strength of Volkswagen Passenger Cars under the roof of Do ufl Otomotiv. Volkswagen Passenger Cars left a very active and successful year behind by increasing its market share. with continued its positive momentum from In March, sales were quite close to the sales of March 2005 and a significant sales increase was seen in the other months. Due to currency rate fluctuations at the rest of the year, there was a significant contraction in the market 70% of which is composed of import brands. The Auto Show which took place in the first two weeks of November and which for the first time is taken into international fair calendar, had a positive impact on sales. In spite of the year-end promotional campaigns and fleet sales, the year closed with 371,325 units sold, resulting in a contraction in the passenger cars market of 16% from the previous year. 2006: Two different market views Looking back at the year, two different market views were seen over the course of The automotive market progressed favorably until mid-may 2006

27 page 25 Always among the top three import brands Volkswagen Passenger Cars that targets to provide the highest level of qualityprice equilibrium with a wide variety of car models and exemplary after sales services to its customers with its over 50 authorized dealers, has always been among the top three import brands and is also regularly cited as the most popular and prestigious brand among consumers. Our market share is growing steadily Although there was a contraction in the total market and the import market share fell from 70% to 67%, Volkswagen Passenger Cars raised its own market share from 7.2% in 2005 to 7.4% at the end of Total sales units were directly affected by the market dynamics and reached 27,619 units, a 13.8% decline in sales from the previous year. 21st century Showroom Since 1994 till now, Volkswagen Passenger Cars reflects the transparency and the intimacy of Volkswagen to its customer by the ultra-modern facilities called Showroom of the 21st Century that has been designed by Volkswagen AG. Sales and after sales service of the Volkswagen models are explained clearly, quickly and creatively by an extensive network of professionally trained authorized dealers in these showrooms. Since its entry into the market, Volkswagen Passenger Cars, with its 11 models that compete across different segments, has been one of the most important and most respected brands in the marketplace.